Infrastructure investment in Australia

October 2016 | FEATURE | FINANCE & INVESTMENT

Financier Worldwide Magazine

October 2016 Issue

Despite its track record of major infrastructure projects – including the Sydney Harbour Bridge, the Overland Telegraph Line, the Snowy Mountain Hydro Scheme and the Adelaide to Darwin Railway – the Australia of today is in dire need of major infrastructure investment. The problem has plagued the continent for some time.

As a testament to the issue, the 2016 report, ‘Pipe Dreams: Reducing the Cost of Public Infrastructure in Australia’ by the McKell Institute, laments “a lost decade” of infrastructure development, while at the same time reiterating the contention that investment is urgently required to meet the needs of a growing Australian population.

But now, following years of frugality, it appears that substantial investment in infrastructure is underway. A huge influx of capital expenditure will allow state governments to launch a spending spree designed to help kick-start the national economy.

Indeed, according to Deloitte’s ‘Access Economic Investment Monitor’, released July 2016, public spending plans have surged in the past few months, with the value of committed investment projects reaching A$73bn ($54.8bn) during Q2 2016 – double that seen in Q1 2016.

Many of Australia’s most respected and renowned economic commentators have spent years questioning what will drive the country’s economic growth going forward, and the financial commitment in Q2 2016 goes some way toward providing an encouraging long-term answer.

Investment uptick

Certainly, this uptick in investment is benefiting a number of major infrastructure projects, including the WestConnex toll road linking Sydney’s west and south-west with the CBD, Sydney Airport and Port Botany in NSW, the upgrade of the Ipswich Motorway between Darra and Rocklea in Queensland, the Perth Freight Link in Western Australia, and the M4 motorway upgrade from Parramatta to Lapstone in NSW.

Further priority projects and initiatives underway, such as the sale of the Port of Melbourne by the Victorian government, the NSW government’s poles wires sell-off and the investment by First State Super in Sydney’s new Light Rail Project, are also serving to create a big pipeline of infrastructure investment.

A huge influx of capital expenditure will allow state governments to launch a spending spree.

“It’s important to put the current vibrant market conditions in perspective,” asserts Garry Bowditch, executive director of the Better Infrastructure Initiative at the University of Sydney’s John Grill Centre for Project Leadership. “Over the last decade, more than half a trillion dollars has been invested in Australian infrastructure, excluding the sale of assets from the public to private sectors – almost double the investment over the previous decade.

“Reducing the possibility for ineffective infrastructure spending through governance reform is a high priority. Overhauling pricing, project selection and prioritisation processes to give complete transparency to the public could help considerably toward ensuring more targeted, scaled and feasible interventions that hit their objective sooner,” he adds.

Key sectors

As a swift perusal of Australia’s current infrastructure project priority list makes clear, the revival in spending by state governments is largely focused on the transport sector, with investment in other industries, such as energy & utilities, less prevalent.

“Infrastructure investment has been dominated by transport, followed by energy,” confirms Mr Bowditch. “There is no doubt that state governments have a strong focus on infrastructure investment as an economic stimulus measure as the nation comes off the back of its resources booms that resulted in significant construction activity in the mining sector.”

That said, Mr Bowditch makes it clear that he would like to see the infrastructure investment refocus on decongesting and debottlenecking existing infrastructure, rather than on the megaprojects that build new infrastructure. “From a productivity standpoint, megaprojects can be slow to deliver on direct and indirect benefits and, until they do, measured productivity can decrease, owing to a bigger capital base inputs that are not matched with output,” he explains.

Reform

Of course, it remains to be seen whether investment levels will prove equal to the task of meeting Australia’s infrastructure needs in the years ahead. According to Mr Bowditch, policy reforms and procurement practices that reduce the possibility for wastage and ineffective investment, and which ensure that every infrastructure dollar works hard for the community, should be the focus.

“Doing more with less is an important precondition for productivity growth in both infrastructure and the general economy,” he says. “However, doing so without a market mechanism is problematic – especially when investors do not receive appropriate price signals for new capacity and customer demand is not properly informed by prices that reflect the costs of delivering services.”

Expanding the scope

Looking to the future, there is clearly substantial scope to invest and expand the infrastructure investment opportunities across Australia.

Furthermore, with the implementation of appropriate reforms, the country can now press ahead and increase the quality and affordability of the infrastructure projects that are so essential to the Australian economy.

Provided suitable levels of investment are made, Australia may even become a world leader in infrastructure provision.